In Robinhood’s first extended comments about the SEC’s proposals since their release in December, two company executives, in an interview with The Wall Street Journal, called the agency’s plan a backdoor attempt to ban payment for order flow, or PFOF. That is a practice in which electronic trading firms known as wholesalers pay brokers a share of their profits from executing investors’ orders.
Payment for order flow is a crucial part of the business model of Robinhood, which is set to report fourth-quarter results Wednesday. Critics of the practice, including SEC Chair Gary Gensler, say it poses a conflict of interest for brokers. But PFOF makes it possible for firms such as Robinhood to make money without charging commissions, and it opened the door to zero-commission trading, which brought millions of new investors into the stock market during the pandemic.
“If you think about the ramifications of these proposals, you’re essentially shutting the door and saying we liked it better when it was the old boys’ club,” Robinhood Chief Brokerage Officer Steve Quirk said.
Source: Robinhood Hits Back at SEC, Warns of Threat to Zero-Commission Trading – WSJ
